Ex-Aeropostale Executive Found Guilty in Vendor Deal

By Christie Smythe -
Apr 25, 2013

Aeropostale Inc. (ARO)’s former top
merchandise executive was found guilty of defrauding the
clothing retailer by striking illegal deals with a vendor that
prosecutors said enriched him by as much as $25 million.

Christopher Finazzo, 57, was convicted of 14 counts of mail
fraud and one count each of conspiracy and wire fraud today by a
federal jury in Brooklyn, New York.

Prosecutors alleged the former executive steered
$350 million worth of business to a supplier controlled by a
friend. Aeropostale overpaid for the merchandise and Finazzo and
his friend shared the revenue, the government alleged. The
former executive faces a maximum sentence of 20 years in prison
on each of the fraud counts.

“Christopher Finazzo had a great job that paid him
millions of dollars, but this honest living was apparently not
enough to satisfy his greed,” Brooklyn U.S. Attorney Loretta Lynch said in a statement. “As today’s verdict shows, we will
vigorously pursue corporate fraudsters who double-deal to enrich
themselves and bring them to justice.”

In a trial before U.S. District Judge Roslynn R. Mauskopf,
the government accused Finazzo of running an illegal scheme for
about a decade with Douglas Dey, controlling owner of South Bay
Apparel Inc., based in Calverton, New York. Dey pleaded guilty
to a conspiracy charge in September and hasn’t been sentenced.

‘A Brother’

Current and former executives of the teen-oriented
retailer, including ex-Chief Executive Officer Julian Geiger,
testified for the prosecution. Geiger, who oversaw a more than
14-fold increase in sales at the New York-based company, told
jurors that Finazzo had been “like a brother” and he was
“incredulous” when he learned about the arrangements with
South Bay.

Geiger, 67, fired Finazzo in November 2006 shortly after
the company became aware of the deals. The arrangements violated
securities regulations because they hadn’t been disclosed to
investors, Aeropostale general counsel Edward Slezak told jurors
in his testimony.

During the trial, prosecutors played a recording of
Finazzo’s termination meeting, in which Geiger and Slezak
confronted him with their findings. In the recording, Geiger
could be heard telling Finazzo, “My heart is broken.”

Robert J.A. Zito, Finazzo’s lawyer, said during opening
arguments April 9 that his client wasn’t aware he was doing
anything wrong by making deals with Dey.

Graphic T-Shirts

The relationship with the vendor, a major supplier of
Aeropostale’s graphic T-shirts, helped boost the retailer’s
sales to $1.4 billion in 2006, Zito said in his opening
statement.

On the Aeropostale website, men’s graphic T-shirts printed
with logos and other designs were listed as being regularly
priced at as much as $29.50 each.

Zito declined to comment on the verdict. Finazzo, dressed
in a dark suit and patterned tie, gave no emotional response
when the verdict was read. He embraced family members in the
courtroom after the jury was dismissed.

The jury of nine women and three men found that Finazzo was
guilty because he prevented Aeropostale from seeking lower-price
shirts and improving its profit. They rejected another basis for
the verdict proposed by the government that Finazzo had deprived
the retailer of money.

Own Interests

Jurors will return April 29 to hear evidence on whether
Finazzo should be ordered to forfeit any assets.

In closing arguments on April 24, prosecutors said Finazzo,
who was paid about $20 million by Aeropostale over his 10 years
of employment.

Assistant U.S. Attorney Winston Paes told jurors that Zito
was suggesting “you can skim money off the top just because the
company is doing well.”

“It doesn’t work like that,” Paes said.

Aeropostale is the 10th-largest mall-based specialty
apparel retailer in the U.S. Sales at the retailer grew to $2.38
billion in 2012 from $141 million in 1998, according to the
company’s financial statements.

The case is U.S. v. Finazzo, 10-cr-00457, U.S. District
Court, Eastern District of New York (Brooklyn).

To contact the reporter on this story:
Christie Smythe in federal court in Brooklyn, New York,
at csmythe1@bloomberg.net